Prudence and Different Kinds of Prevention
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This paper examines the effect of prudence on the optimal choices of advance and contemporaneous prevention in a context where the two kinds of prevention are used together. We show that, under some conditions on the probability of loss occurrence, prudence tends to increase advance prevention and to reduce contemporaneous prevention, while imprudence tends to do the opposite. Further results on the effect of prudence/imprudence on agents’ optimal behavior are provided.
Keywordsprevention prudence self protection advance prevention contemporaneous prevention
The author would like to thank Louis Eeckhoudt, Richard Peter, two anonymous referees and the Associate Editor Diego Nocetti for their useful comments and suggestions. The usual disclaimers apply.
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